Many businesses – in particular, small and mid-sized businesses – make the same mistake year after year – and lose substantial amounts of money as a result.
Are you one of them?
To find out, start by asking yourself the question: Did you keep track of your R&D projects in the past year?
If your answer is no, then there is a chance you are. In our experience, smaller enterprises in Canada are vastly underutilizing the federal government’s $4 billion SR&ED tax credit program.
There are a couple of reasons for this. The first is that company owners often fail to appreciate that they could qualify to apply to the SR&ED program. This is due to the erroneous but widely held notion that qualifying R&D work must be carried out as a formal activity. In many people’s minds, the program is thus biased towards large firms with dedicated research practices.
Nothing could be further from the truth. Indeed, the Canadian Revenue Agency addresses this point explicitly on its website with the statement that the program is targeted at “Canadian businesses of all sizes.” Based on our many years practice, we can confirm that smaller businesses are just as likely to receive SR&ED tax credits for their R&D work as larger companies – as long as the work qualifies. That’s the determining point!
The second reason smaller companies often fail to take advantage of the SR&ED program is that they don’t realize how broad the CRA’s definition of R&D really is.
Simply put, qualifying work is not limited to basic research conducted in a lab. While such work certainly may meet the eligibility requirements, the CRA clearly stipulates that applied research, experimental development and supporting activities can also be claimed against the SR&ED tax credit.
If your company has done any of the following in the past year, it could be eligible for a refund:
- Developed a new product or made iterative innovative improvements to an existing product
- Designed and tested a new product, a prototype or a process
- Responded to a technological uncertainty by modifying a product or process
- Responded to the need for increased productivity or quality by modifying equipment or processes
- Developed a new application for an existing technology
- Developed computer programs or software for use in-house to meet an industry specific need
The only sure way to find out if you qualify is to submit a claim. You have 18 months to file following the end of your fiscal year.
A basic requirement for eligibility is that the claimed work must have been performed in Canada. Canadian companies that qualify may receive funding to cover up to 68% of their expenditures, including your time, employee labour, materials and equipment.
With the money you receive, you can invest in sales and marketing, buy new equipment or launch a new product – the options are endless because the refund comes with no strings attached.
Now wouldn’t you agree that it’s worth finding out if you quality for a SR&ED tax credit?
To learn more about how you can put your SR&ED claim to work for you, visit Funding Research and Experimental Development Group Inc. (FRED Group for short) at fredgroup.ca.
Fred Hausmann is the founder and senior managing director of Funding Research and Experimental Development Group Inc., a business development and specialty tax service. FRED helps companies obtain the full amount of government funds and rebates, including SR&ED tax credits, they have coming to them. And then it helps them grow.